Volume 6, Number 22, Page 2
Electronic Commerce in the Western Hemisphere: An Ongoing Series
In this issue, the Inter-American Trade Report begins a series of articles concerning the creation of new legal rules to better support the development of electronic commerce in the Americas. At the recent conference, "Responding to the Legal Obstacles to Electronic Commerce in Latin America," (see "Experts Meet on Legal Obstacles to E-Commerce" in this issue) panelists were presented with a questionnaire on various issues related to electronic commerce in the Western Hemisphere. Their responses will be presented on a topic by topic basis, providing a comparative overview of the law as it stands today. Topics covered will include Agreements and Private International Law (conflicts of law rules), Electronic Signature Systems, Jurisdiction, Intellectual Property Issues in E-Commerce, Certification, Authentication and Electronic Signatures and Taxes, Tariffs and Other Regulatory Barriers.
In this first of the series, panelists respond to the question of whether commercial custom and course of dealing represent a binding and not merely a "persuasive" or "secondary" source of law in the panelist's country. The question is of particular significance in light of the fact that the law has yet to be fully adapted to accommodate the new issues raised by the electronic marketplace. Therefore, prevailing commercial custom and course of dealing may often serve in place of more specific legislation. For further information, contact Mariana Silveira (msilveira@natlaw.com) Francisco Laguna (flaguna@natlaw.com).
Sources of Law
Given the constantly changing nature of e-commerce technology and business practices, and that such changes are first reflected in the parties' course of dealing and commercial customs, is commercial custom and course of dealing a binding and not merely a "persuasive" or "secondary" source of law?
Under current Argentine law applicable to e-commerce contracts, in order to answer the aforementioned question, one should analyze what is provided as a source of law in general by the Commercial Code and/or by the Civil Code.
Section V. of the Preliminary Title to the Commercial Code in force expressly stipulates that "The mercantile customs can serve as a rule to determine the meaning to the terms or technical phrases utilized in commerce, as well as in order to interpret the mercantile acts or agreements." In turn, article 218, item 6° of said Code states " (It) being necessary to interpret a contractual clause, the following will serve for the interpretation thereto... The use and practices generally observed in commerce in cases of similar nature, and especially the custom of the place where the contract must be fulfilled, will prevail over any interpretation to the contrary that might be intended to give to the wording."
Article 17 of the Civil Code stipulates "Usages and customs cannot create rights except in cases where the laws refer to them or in situations not regulated by law." The prevailing Doctrine on the matter1 distinguishes three types of customs and usages: Secundum legem (i.e., that complete the regulatory content of the law); Praeter legem (i.e., that situation in which custom and usages acts as a subsidiary source of the law); and Contra legem (i.e., that situation in which custom and usages contradict the conduct required or prescribed under the applicable legislation). The first two cases would be clearly acceptable instances of applicability of usages and custom to the circumstance in question. The third case is generally considered a situation where custom and usages would not be a valid source of the law.
In addition, it is worth mentioning that in what concerns the determination of the real scope and meaning of technical language specific to a given sector (such as e-commerce), Section V of the Preliminary Title of the Commercial Code unequivocally states that standing custom and commercial practices can be utilized as a valid parameter to ascertain the real meaning of the words and/ or phrases used therein. Aside from the exceptions mentioned above, under Argentine law, custom and usages that are Secundum legem and Praeter legem do have a binding nature. Custom and usages that are Contra legem do not have a binding nature.
BRAZIL: R. Nogueira, L.H. Ventura
General commercial custom is considered to be a secondary source of law, only applicable in the absence of formal written law governing a particular matter. Nevertheless, in situations where a particular course of dealing is extensively and sufficiently utilized by two or more parties in their dealings with each other, such course of dealing will be deemed enforceable as if it were specifically provided for in a duly executed written contract. In Brazil, terms mutually contracted between parties or their equivalent (certain courses of dealing) have the same force as law with respect to the parties.
BRAZIL: R. Lemos
The Brazilian Legal System is fundamentally influenced by the European Continental Law, such as the French and German traditions. French legal tradition formulated one of the most enduring theories about the sources of law, dividing such sources in two categories: formal and material sources2. These categories are soundly embodied in the Brazilian Legal System, and one can find implicit references to such concepts in court decisions and contracts.
Formal sources relate to the technical procedure of lawmaking, by means of statutes, decrees, contracts and court decisions, and are not concerned with the content of normative provisions. Material sources, in turn, relate primarily to such content. That is, according to the aforementioned French school of thought, the normative content inserted in legal provisions originates from rationally shaped historical and social values. Such values therefore naturally considered in the procedure of lawmaking. Formal sources of law are far more utilized in the Brazilian Legal System (as they are in most modern legal systems) than material sources. In this sense, formal acts, such as the Brazilian Commercial Code enacted in 1850, are the most important source of Brazilian trade law. Commercial customs and courses of dealing are considered material sources. Therefore, they are in practice rarely applied, such application being typically limited to cases subsidiary to Statutes that do not provide a complete solution to a given case3.
In this sense, course of dealing and commercial customs are expressly regarded as subsidiary sources of commercial law. According to the formal structure of Brazilian Commercial Law, the hierarchy for Commercial Law is as follows: 1) Commercial Law; 2) Civil Law; 3) Commercial customs and course of dealing;
Commercial Statutes are the primary source of law applicable to commercial matters, such as those embodied in the Commercial Code. Civil law is the first subsidiary body to be applied in the case of matters not fully regulated by Commercial Law. According to article 121 of the Commercial Code, Civil Law rules and provisions regulating contracts and agreements in general are applicable to commercial contracts.4
Regarding the formal structure of Commercial Law, customs and course of dealing shall only be applied in cases that cannot be decided in strict accordance to statutes. Therefore, they have the role of providing a third source of law for deciding cases that cannot be solved by the applicable legislation5. One rarely finds claims based on customary law before the Brazilian Courts because Brazilian Civil Procedure Code sets forth in article 337 that the plaintiff or defendant alleging City, State, Foreign or Customary Law shall make evident its content and its validity, as determined by the Judge.6 In most cases, practitioners prefer to base their claims on statutory law or, in some cases, general principles of law7 instead of course of dealing and commercial custom.
Accordingly, the Brazilian Introductory Statute to the Civil Code sets forth in Article 4 that When the law is vague, judges shall decide cases according to analogy, customs and general principles of law . There is no special order of application: judges are free to ground their decisions on analogy, customs and/or general principles of law without at their discrimination. Since customary law needs to be evidenced by the claiming party, according to the aforementioned Civil Procedure Code provision, lawyers generally base their claims primarily on grounds of analogy or general principles of law, instead of customs.
As a general rule, course of dealing and commercial customs have weak binding character in Brazilian Law; court decisions evidence this. Decisions based on commercial customs and course of dealing are quite rare.
The impact on electronic commerce is self-evident. Courts will remain reluctant to enforce claims based on commercial customs and course of dealing. Also, parties shall rarely base claims on customary law considering the unlikelihood of a favorable decision.
The elements above render the application by the Brazilian courts of any sort of Lex Mercatoria very difficult. Lex Mercatoria may have certain applicability in arbitration proceedings, as basis of arbitral awards. However, even in such cases, parties may prefer to agree upon choice of law and forum clauses to decide international claims in order to avoid possible problems relating to enforcement of the award8.
CANADA: J. Remsu
Canadian law respects the freedom of parties to contract, subject to mandatory provisions of law such as consumer protection legislation. Where the parties have not expressly provided for trade usage or commercial customs in their contracts, the courts may consider and apply trade usage or commercial customs to interpret a contract. In Canada, therefore, trade usage and commercial customs can be regarded as a secondary source of law.
In common law systems within Canada (nine provinces and three territories) there is no distinction between commercial and civil law. Private law is the same for all parties, with the exception of the law pertaining to consumer protection. In the civil law jurisdiction of the Province of Quebec, commercial transactions are governed by the Civil Code of Quebec and are subject to consumer protection legislation. In Canada, there is no separate commercial court system. In Canada, the presence of e-commerce does not introduce new problems to the traditional conflict of laws issues.
CHILE: J. Ortero
According to Article 4 of the Chilean Commercial Code, custom or business practices constitute a source of commercial rights and obligations if no other legal stipulation governs the practice or conduct. In this sense, custom or business practices may be classified as a secondary source of Commercial Law.
Pursuant to Article 6 of the same Code, business practices also serve as a rule to determine the meaning of words or technical phrases used in commerce and to construe commercial acts or conventions.
COLOMBIA: F. Reyes
Rooted in the Roman-Germanic tradition, the Colombian legal system is based upon the prevalence of written law over any form of custom. The importance of legal certainty has traditionally been equated with said prevalence. The local legal system incorporates a general principle whereby "judges, in their decisions are only subject to the rule of written law. Equity, case law and general law principles and doctrine constitute auxiliary criteria for the judicial activity" (Article 230 of the National Constitution).
Although customary law is not even mentioned in the above-quoted provision, the Constitutional Court has determined that the term "law," as used by said rule, includes customs and usage as subsidiary sources of law. Thus, commercial usage and customs are considered to be subsidiary sets of rules that are legally binding in the absence of a written statute.
Article 3 of the Colombian Commercial Code states that "mercantile usage shall enjoy the same authority of commercial law, provided it would not actually or tacitly conflict with the law and that the facts that serve as its foundation are public, uniform and reiterated in the place where the obligations are to be fulfilled or where the relations which must be regulated thereby have arisen." In light of this rule, commercial custom can be considered as a source of law, much as the mercantile law itself.
Even though the legal rule referred to above appears to imply parity between commercial custom and commercial law, this principle is only applicable if the mercantile usage does not contradict the law. Furthermore, Article 4 of the Commercial Code establishes that contractual clauses should enjoy preference over alternate legal provisions and commercial usage. In addition, according to the rule set forth in Article 822 of the same Code, Civil Code9 provisions regarding contracts and obligations are considered commercial law with respect to matters not specifically regulated by the mercantile statute.
Given the legal recognition of mercantile usage, the law provides certain procedural rules applicable to customary evidence. Pursuant to said rules, a mercantile custom is legally enforceable if it has been recognized by at least two judicial decisions or duly certified by the local chamber of commerce.
ICC: J.A. Avellan
The ICC has often relied on and taken into consideration the "course of dealing" between parties and commercial customs when drafting legal instruments for international trade. Examples of this include the Uniform Customs and Practice for Documentary Credits (1993) (hereinafter UCP500) and INCOTERMS 1990, both of which are widely used in international trade and, in many jurisdictions, recognized as commercial customs of international trade10. The ICC has extended the application of these instruments to the area of electronic commerce by incorporating in both UCP500 and INCOTERMS 1990 the possibility of using electronic media. It has also begun some new approaches focused exclusively on electronic commerce such as, the E-Terms Project, and the General Usage for International Digitally Ensured Commerce (hereinafter GUIDEC (1997)). The E-Terms project "provides for the development and publication of diverse electronic commerce terms", such as "commercial terms submitted by trading partners and information service providers," "Best Practice Rules for electronic commerce" and "treaties, conventions, and standards relevant to electronic commerce."11 In the case of the GUIDEC (1997), its principle objective is "to establish a general framework for the ensuring and certification of digital messages based upon existing law and practice in different legal systems."12
MEXICO: O. Becerril
No specific legislation for regulating electronic commerce presently exists in Mexico. Therefore, this new form of commerce may only be provisionally regulated by a set of existing laws such as the Law for the Protection of the Consumer, the Civil Code, the Code of Commerce, the Industrial Property Law and the Copyright Law.
The Mexican legal system is based on written law. Therefore, course of dealing and commercial custom may be considered only as a merely persuasive or secondary source of law.
USA: O.T. Johnson
In the United States, electronic commerce is not waiting for the emergence of well-developed legal structures, at least not at the consumer level. Consumer demand is pushing electronic commerce forward, and the law will simply have to catch up. Commercial customs and the parties' course of dealing currently are the accepted norm for electronic commerce. However, there still is a strong need for a well-developed legal structure if electronic commerce is to reach its full potential. This is especially true with respect to higher value transactions between businesses. Consumers may thus far be relatively unconcerned about engaging in smaller transactions on-line, without first understanding the rules that govern such transactions. The same is not necessarily true of businesses that wish to conduct higher value transactions on-line and for whom the concomitant risk is considerably greater.
USA: I. Rubinstein
The explosive growth of electronic commerce in the absence of a definitive legal framework demonstrates that course of dealing and commercial custom provide the necessary tools for engaging in business over the Internet. Indeed, the potential benefits of e-commerce are so great that parties have been willing to rely solely upon these sources and analogies from existing commercial law to govern their transactions. Nonetheless, the lack of a specific legal structure for e-commerce has inhibited its development, as some parties remain hesitant to engage in electronic transactions, and companies delay the release of new products and services until they know the governing legal framework. That legal framework should, like commercial law in the U.S., explicitly incorporate course of dealing and commercial custom as factors to be considered in resolving disputes. Likewise, the legal framework should be flexible enough to accommodate the ever-changing business practices and technologies employed in e-commerce. In fact, the single guiding principle against which any proposed legal framework should be evaluated is whether it is technology neutral, such that it does not enshrine any particular technology and thus impede technological development. Nonetheless, for electronic commerce to truly flourish, a formal legal framework is necessary.
1 Conf. Bueres, Alberto J. and Highton, Elena I. “ Código Civil y normas complementarias – Análisis doctrinario y jurisprudencial” page 37
2 Cf. GENY, François. Método de interpretación y fuentes del derecho privado positivo. Madrid, Reus, 1925.
3 Regarding the above, it should be noted that the Brazilian Legal System is predominantly formally based, and innovative responses from courts to new questions such as electronic commerce issues invariably take some time. Such formalism is rooted in an excessive attachment to old-fashioned legal doctrines, which is derived from the way law is taught in Brazilian law schools, the way judges are instructed and selected and other institutional and social elements. Many studies have been written in connection with the growing difference between the Brazilian Legal System and social institutions. Most of these studies connect this lag with the way judges and lawyers are legally trained. (See Cf. FALCÃO, Joaquim de Arruda. Os cursos jurídicos e a formação do Estado Nacional. Brasília, Câmara dos Deputados, 1978. DANTAS, F. C. Santiago. A educação jurídica e a crise brasileira. Encontros UnB: ensino jurídico. Brasília, UnB, 1979. FARIA, José Eduado. O direito na economia globalizada. São Paulo, Malheiros, 1999. FARIA , José Eduardo. Ordem Legal x Mudança Social: a crise do Judiciário e a formação do magistrado, in Direito e Justiça - Função Social do Judiciário, 1996, São Paulo, Ática.) However, it is not the purpose of this response to discuss the causes of formalism, but its consequences to electronic commerce.
4 Informal translation.
5 According to CARVALHO DE MENDONÇA, J. X., Tratado de Direito Comercial Brasileiro, São Paulo, 1953, Freitas Bastos, p. 179. Course of dealing in Brazilian marketplaces play the second role among subsidiary sources of commercial law; it has an authority smaller than civil law; and are located in an inferior place on sources hierarchy. Informal translation.
6 Informal translation.
7 Informal translation.
8 In connection with choosing lex mercatoria for arbitration procedures and the enforcement question, Cf. MERTENS, Hans-Joachin, Lex Mercatoria: A Self-applying system beyond national law? in Global Law without a State, TEUBNER, Gunther (editor), 1997, Dartmouth, UK.
9 Article 822 states “The principles governing acts and contracts in civil law obligations, their effect, interpretation, extinction, annulment or rescission, shall be applicable to juridical commercial obligations and matters, unless otherwise provided by law.”
10 In Spain the INCOTERMS have been given statutory force by Royal Decree of 14 September 1979 and in Iraq all foreign trade transactions are governed by them.
11 ICC, ETERMS Repository Guidebook, Foreword.
12 ICC, General Usage for International Digitally Ensured Commerce (GUIDEC), Background.
